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NCERT Solutions for Class 12 Accountancy Chapter 2, Issue and Redemption of Debentures: Students can find attached NCERT Solutions for CBSE Class 12 Accountancy Part 2, Chapter 2, Issue and Redemption of Debentures. A PDF download link has been attached below for the free download of complete NCERT Solutions.
NCERT Solutions Class 12 Issue and Redemption of Debentures: This article hands out complete NCERT Solutions for CBSE Class 12 Accountancy Part 2, Chapter 2, Issue and Redemption of Debentures. Find attached a PDF download link for the same. These will be useful in your preparation for upcoming CBSE Board Examinations 2023-2024.
NCERT Solutions are a great source of scoring high marks in Board Examinations as well as related competitive examinations. NCERT books hand out detailed and complex knowledge of chapters and topics. These are so well written and drafted that even competitive exams pick questions from these books. Proper practise of NCERT Solutions and in-text questions are enough for you to score 90% marks in your annual examinations.
Here, we have presented NCERT Solutions for Short Answer Questions and Long Answer Questions only. Numerical problems will be soon updated here. By the time, keep practicing and learning questions and answers for your examination.
Related:
CBSE Class 12 Accountancy Syllabus 2023-24 (PDF)
CBSE Class 12 Accountancy Sample Paper 2023-24 (PDF)
NCERT Solutions for Class 12 Accountancy 2023-2024
NCERT Solutions for Class 12 Issue and Redemption of Debentures are as follows:
Short Answer Questions
1. What is meant by a Debenture?
Answer. Debenture is a written document consisting of debts under the seal of the company. The word is derived from the Latin word ‘debere’ which means to borrow. Debenture is a contract that entails a time period for repayment of the principal.
2. What does a Bearer Debenture mean?
Answer. Debentures whose names do not appear in the register of debt holders but are payable to the bearer are called bearer debenture. These can be transferred by the way of delivery.
3. State the meaning of ‘Debentures issued as a collateral security’.
Answer. Debentures issued as a collateral security means that the debentures are issued to the lender as a parallel or secondary security in addition to the primary security.
4. What is meant by ‘Issue of debentures for consideration other than cash’?
Answer. When a company issues debentures on buying assets from its suppliers and vendors instead of paying them in cash, is known as an issue of debentures for consideration other than cash.
5. What is meant by Issue of debenture at discount and redeemable at premium?
Answer. If the debentures are issued at a value less than their face value but are redeemed at a value higher than the face value, then it is called an Issue of debenture at discount and redeemable at a premium.
6. What is ‘Capital Reserve’?
Answer. The amount stored by a company in cash to bear any capital losses is called capital reserve. It is mentioned in the equity section of the company’s balance sheet.
7. What is meant by a ‘Irredeemable Debenture’?
Answer. Debentures that are repayable on the winding up of the company or on the expiry of a longer period are called irredeemable debentures. They are also called perpetual debentures.
8. What is a ‘Convertible Debenture’?
Answer. The debentures that can be fully or partially converted into equity shares or any other form of security are called convertible debentures.
9. What is meant by ‘Mortgaged Debentures’?
Answer. If debentures are secured against the fixed asset/particular asset of the company, then they are known as Mortgaged debentures.
10. What is discount on issue of debentures?
Answer. When the debentures are issued at a rate lesser than the nominal value or face value, the reduced amount is referred to as discount on issue of debentures.
11. What is meant by ‘Premium on Redemption of Debentures’?
Answer. If debentures are redeemed at a value higher than the face value, then it is called as premium on redemption of debentures. It appears on the liability side of the balance sheet.
12. How debentures are different from shares? Give two points.
Answer. Debentures and shares are different from each other by the following points:
- Shares make you the rightful owners of the company but debentures don’t
- Owners of shares are referred to as shareholders or partial owners of the company whereas debentures are known as creditors of the company.
13. What is meant by redemption of debentures?
Answer. Repaying the debts raised by a company is called the redemption of debentures.
14. Can the company purchase its own debentures?
Answer. Yes, a company can purchase its own debentures and use them as a tool for earning profits by selling them to people.
15. What is meant by redemption of debentures by conversion?
Answer. The process of conversion of debentures into other debentures or shares after the expiry of the existing debenture is called redemption of debentures by conversion.
16. How would you deal with ‘Premium on Redemption of Debentures?
Answer. Premium on redemption of debentures is included as liability in the balance sheet of the company and it is given to the debenture holder during redemption.
17. What is meant by redemption of debentures by “Purchase in Open Market”?
Answer. When a company’s Article of Association allows it to buy its own debentures, it is known as redemption of debentures by ‘Purchase in Open Market’.
Long Answer Questions
1. Explain the different types of debentures?
Answer. Different types of debentures are:
- Secured debentures– The debentures that create specific charges on the assets of the company for repayment on time are called secured debentures.
- Unsecured debentures– The debentures that do not have a specific charge on the assets of the company are called unsecured debentures.
- Redeemable debentures– The debentures that are payable at a specific period of time either in the form of a lump sum amount or in installments are called redeemable debentures.
- Irredeemable debentures– The debentures that are repayable on the winding up of the company or after a longer period of time are called irredeemable debentures.
- Convertible debentures– The debentures that can get converted into shares or other forms of securities are called convertible debentures.
- Non- convertible debentures– The debentures that cannot be converted into shares or other forms of securities are called non-convertible debentures.
- Specific Coupon Rate Debentures– The debentures that are issued at a specific rate of interest are called specific coupon rate debentures. The interest rate could be floating as well as fixed.
- Zero Coupon Rate Debentures– These debentures don’t have a specific rate of interest. The debentures are issued at a discount and this amount is considered as the interest.
- Registered Debentures– The debentures that get registered in the books of the company and include details such as names, addresses, and particulars of holding of the debenture holders.
- Bearer Debentures– The debentures that can be transferred by way of delivery and whose record does not get mentioned in the books of the company or are not registered by the company are called bearer debentures.
2. Distinguish between a debenture and a share. Why debenture is known as loan capital? Explain.
Answer. The difference between debenture and shares are as follows:
|
Debentures |
Shares |
|
Debenture holders are referred to as creditors. |
They are referred to as partial owners or shareholders of the company. |
|
They don’t possess any ownership of the company and thus don’t have voting rights |
They are partial owners of the company and exercise all the rights such as voting rights |
|
They receive their returns in the form of dividend |
They receive their returns in the form of interest |
|
Debentures cannot be converted into shares |
Shares can be converted into debentures |
|
They are prioritized during the repayment of debts |
They are paid after payment of all the external liabilities has been done |
Debentures are called capital loans since they can be redeemed after a long period of time. Companies take loans or debt from debenture holders since they can be paid after a long period of time and at an interest rate compatible with both of them, which is often taken care of under the Income Tax Act. Thus, it is referred to as a capital loan since it helps companies in achieving their long-run targets.
3. Describe the meaning of ‘Debenture Issued as Collateral Securities’. What accounting treatment is given to the issue of debentures in the books of accounts?
Answer. The secondary or additional securities issued beside the primary security is called collateral security. Debentures issued as a collateral security means that the debentures are issued to the lender as a parallel or secondary security in addition to the primary security.
The accounting treatment in the following case is done in two ways which as presented below as:
- On the liability side of the balance sheet, below the item of loan, a note to the effect that it has been secured by the issue of debentures as a collateral security is appended.
|
Particulars |
Note |
Amount |
|
I. Equity and Liabilities 1. Non-current Liabilities Long-term borrowings |
1 |
10,00,000 |
Notes to accounts:
Long-term borrowings
Bank Loan (Secured by issue of 10,000, 10% debentures of Rs. 10 each as Collateral Security
- The issue of debentures as collateral security may be recorded by means of journal entry.
|
Particulars |
Note |
Amount |
|
II. Equity and Liabilities 1. Non-current Liabilities Long-term borrowings |
1 |
10,00,000 |
Note to Accounts:
|
Particulars |
Note |
Amount |
|
Long term borrowings Bank loan 10,000, 9% debentures of Rs. 100 each Less: Debenture suspense |
10,00,000 10,00,000 |
10,00,000
10,00,000 |
4. Explain the different terms for the issue of debentures with reference to their redemption.
Answer. The different terms for the issue of debentures with reference to their redemption are:
- Issued at par and redeemable at par
- Issued at a discount and redeemable at par
- Issued at a premium and redeemable at par
- Issued at par and redeemable at a premium
- Issued at a discount and redeemable at a premium
- Issued at a premium and redeemable at a premium
5. Differentiate between redemption of debentures out of capital and out of profits.
Answer. Difference between redemption of debentures out of capital and out of profits are:
|
Out of capital |
Out of profits |
|
No transfer of profits to DRR takes place |
As per SEBI guidelines, having a DRR is mandatory |
|
Redeeming debentures from out of capital alone is not possible |
Redeeming debentures from out-of-profits alone is possible |
6. Explain the guidelines of SEBI for creating Debenture Redemption Reserve.
Answer. The following guidelines of SEBI are important for creating Debenture Redemption Reserve:
- Companies with issues of debenture with maturity of more than 18 months have to create a DRR.
- Debentures that are partly convertible also need to have a DRR for the non-convertible part, in the same manner as done for fully non-convertible debentures.
- DRR which is equal to 50% of debenture issues should be created by companies before debenture redemption is done.
- DRR can be withdrawn only if 10 % of the debenture liability has been redeemed by the company.
- DRR is not issued for companies with a maturity up to 18 months and those that are involved in infrastructure such as business development, construction, etc.
7. Describe the steps for creating Sinking Fund for redemption of debentures.
Answer. The steps for creating Sinking fund for redemption of debentures are as follows:
- Use the Sinking fund table and calculate the amount of profit to be kept aside.
- The amount to be kept aside must be transferred to the DRF account at the end of each year.
- Investments of the same amount must be bought and debited to the DRFI account.
- Interest must be taken at the end of each year on the investment.
- Except for the year of redemption, buy investment equals the rest of the time.
- Take interest in the year of redemption
- Last year’s fixed amount of profit must be kept aside.
- At the end of the year of redemption, encash the investments
- Take the profit or loss and transfer it from the fund investment account to the debenture redemption fund account.
- Debenture holders must be paid now.
- Now, at last, the fund from the debenture redemption fund account must be transferred to the general reserve.
8. Can a company purchase its own debentures in the open market? Explain.
Answer. Yes, a company can purchase its own debentures in the open market if it is authorised by the Article of Association. Only under two circumstances, a company does so: when it has to immediately cancel the debenture since its rate of interest is higher than the market’s and when the company wants to sell those for earning more profits in the future.
9. What is meant by conversion of debentures? Describe the method of such a conversion.
Answer. The process of converting the debentures into shares or new debentures after the expiry of a specific term is called conversion of debentures. This is done by debenture holders if they seek benefit in doing so.
For complete NCERT Solutions for CBSE Class 12 Accountancy Chapter 2, click on the link below
|
NCERT Solutions for Class 12 Issue and Redemption of Debentures |
Also Find:
CBSE Class 12 Syllabus 2023-24 (All Subjects)
CBSE Class 12 Sample Papers 2023-24 (All Subjects)
NCERT Books for Class 12 (All Subjects)
NCERT Solutions for Class 12 (All Subjects)
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